Are you aware of the IHT Reduced Rate of 36%?
Last updated on January 26th, 2021 at 10:11 am
In this article we look at the IHT reduced rate of 36% which may come up if you are sitting the R03 exam and of course the AF1 exam.
It is possible to pay a reduced rate of IHT of 36% where at least 10% of someone’s net estate is left to charity. The 10% is calculated after deducting IHT exemptions, nil rate band and any reliefs e.g. business property tax.
Here’s a question from our R03 calculation workbook showing how it works in practice:
Mr Grant died on 23rd March 2021, leaving £10,000 to his favourite charity, £180,000 to his wife and £350,000 of cash to be split equally between his son and daughter. He had made no gifts during his lifetime. What is the IHT liability on Mr Grant’s estate?
Total estate 540,000
Nil rate band -325,000
Spouse exemption -180,000
The balance is £35,000.
10% of £35,000 is £3,500.
As the charitable gift is £10,000 this is over the 10% so Mr Grant will be liable to 36% rather than 40%.
Take the gift of £10,000 from £35,000 and the balance of £25,000 is taxable at 36% = £9,000
If you would like to practice more R03 calculations our workbook is available via our website: